Vladimir Putin on Friday announced Russia would not expel any American diplomats after the United States kicked out 35 Russian embassy and consulate staff in retaliation for the hacking of US political groups during the 2016 election, in a move that appears designed to sow confusion ahead of Donald Trump's inauguration.
Analysts had predicted a round of tit-for-tat expulsions in a return to Cold War diplomacy. However, Mr Putin's announcement will pile pressure on to Mr Trump to risk further splits in his Republican Party by reversing Barack Obama's expulsions.
Mr Putin described the US sanctions as a "provocation aimed to further undermine Russian-American relations" in a statement on the Kremlin website.
"The Russian diplomats returning home will spend the New Year Holidays with their relatives and dear ones," he said. "At home we will not create problems for US diplomats. We will not expel anybody." For good measure, Mr Putin invited the children of American diplomats to a festive party at the Kremlin.
The diplomatic manoeuvring began on Thursday when the US announced it was expelling 35 Russian diplomats and their families.
Officially they were given 72 hours to leave in response to Russian harassment of American diplomats. However, the US also closed Russian recreational compounds in New York and Maryland that officials said were being used for spying, and imposed sanctions on nine entities and individuals including the GRU and FSB intelligence agencies, leaving no doubt that the real reason was allegations of cyber attacks.
For his part, president Obama said the sanctions were just the beginning.
"These actions are not the sum total of our response to Russia's aggressive activities. We will continue to take a variety of actions at a time and place of our choosing, some of which will not be publicised," he said.
The moves mark a new low in relations and come after years of worsening ties and a steady series of claims that Russian cyber spies were targeting the US.
In the past month, senior US officials said the highest levels of the Russian government — including possibly Mr Putin himself — ordered cyber attacks on the Democratic Party and Hillary Clinton's election campaign. Emails stolen from her campaign manager's account and from the Democratic National Committee were released by the WikiLeaks website
Mr Obama's steps immediately recalled similar moves during the Cold War when expulsions were routinely used as a tool of aggression and were mirrored with immediate reprisals.
Analysts said the sanctions would intensify pressure on the Putin regime, which is already facing penalties for annexing Crimea, highlight Russia's use of cyber warfare and box Donald Trump into a corner at a time when the Kremlin was hoping a new outlook in Washington would ease international opposition.
Within 24 hours, Sergei Lavrov, the Russian foreign minister, said he had asked for 31 staff at the American embassy in Moscow and four diplomats from the US consulate in St Petersburg to be declared persona non grata.
But soon after, Mr Putin signalled the sudden change of tack in what appeared to be a carefully choreographed manoeuvre to draw a line under Mr Obama's administration and prepare for president Trump.
The ground had already been prepared by a string of officials who heaped abuse on the outgoing Obama administration, accusing them of sabotaging ties.
As the world waited for a formal Russian response, the country's embassy in London took to Twitter to ridicule Mr Obama, posting a picture of a duck with the caption "lame".
"President Obama expels 35 diplomats in Cold War déjà vu. As everybody, incl (American) people, will be glad to see the last of this hapless Adm," it added for good measure.
The next move may well be up to Mr Trump as Washington prepares for the inauguration of a president-elect who has positioned himself as a friend to Moscow.
Mr Trump faces a dilemma. He is already at odds with many senior Republicans who want a tougher stance against what they see as Russian aggressions. Mr Trump will now have to decide whether to reverse the sanctions and expulsions, risking further splits within his party after he is sworn in on January 20.
Senators John McCain and Lindsey Graham, two hawks, said they would push for tougher measures.
"The retaliatory measures announced by the Obama administration today are long overdue. But ultimately, they are a small price for Russia to pay for its brazen attack on American democracy. We intend to lead the effort in the new congress to impose stronger sanctions on Russia," they said in a joint statement.
Mr Trump has repeatedly dismissed allegations that Russia intervened in the election on his behalf.
"It's time for our country to move on to bigger and better things," he said after the sanctions were announced. "Nevertheless, in the interest of our country and its great people, I will meet leaders of the intelligence community next week to be updated on the facts of this situation."
Michael McFaul, who served as US ambassador to Moscow from 2012 to 2014, said Mr Trump would be reluctant to take any action that would further raise questions about foreign support he received during the election.
"Mr Trump and his advisers need to take seriously this analysis so we don't have the same kind of irregularities in the next presidential election," he said.
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